United States: Economic growth stalls in first quarter
April 30, 2014
In the first quarter, GDP increased at a seasonally adjusted annualized rate (SAAR) of 0.1% according to the advance estimate released by the Bureau of Economic Analysis (BEA) on 30 April. The print marked a notable deceleration relative to the revised 2.6% growth recorded in the fourth quarter (previously reported: +2.4% quarter-on-quarter SAAR) and marked the weakest expansion since Q1 2011. The result far undershot market expectations; analysts saw GDP only slowing to a 1.1% increase. The weak growth mainly reflects a decline in investment, inventory growth and in exports. The harsh winter is seen as a major factor behind the slow growth, although the economy is expected to rebound going forward.
On the domestic side, private consumption fell from a 3.3% expansion in Q4 to a 3.0% increase in Q1. Non-residential fixed investment tumbled from a 5.7% rise in Q4 to a 2.0% contraction in Q1. Residential fixed investment dropped 5.8% in Q1 (Q4: +7.9% qoq SAAR). Business inventories dragged significantly on growth, with a slowdown in restocking subtracting 0.6 percentage points from GDP. Meanwhile, government spending contracted 0.5% in Q1, which was up from the 5.2% drop in Q4.
Exports growth plummeted to a 7.6% contraction in the first quarter (Q4: +9.5% qoq SAAR) and imports fell 1.4% (Q4: +1.5% qoq SAAR). Consequently, the external sector's net contribution to overall growth decreased from 1.0 percentage points in the fourth quarter to a flat reading in the first.
The Federal Reserve expects economic growth to range between 2.8% and 3.0% in 2014 and between 3.0% and 3.2% in 2015. FocusEconomics Consensus Forecast panelists are slightly less optimistic than the Fed and expect GDP to expand 2.8% in 2014, which is up 0.1 percentage points from last month's forecast. For 2015, the panel expects the economy to expand 3.0%.
Author: Carl Kelly, Economist